FMOC - Federal Open Market Committee

FOMC - Federal Open Market Committee

25-NOV-2022


FOMC MINUTES REVIEW: The Fed minutes were taken as dovish with markets now pricing in a ca. 80% chance of a 50bp hike in December and just a 20% chance of a 75bp move (down from about a 25% probability heading into the minutes). The minutes noted that a substantial majority of participants judged a slowing in the pace of interest rate hikes would likely soon be appropriate and would allow the Fed to assess progress towards its goals given the uncertain lags around policy. However, other participants noted that, before slowing the pace of policy rate increases, it could be advantageous to wait until the stance of policy was more clearly in restrictive territory and there were more concrete signs that inflation pressures were receding significantly. However, as has been widely flagged, the minutes emphasised with policy approaching a "sufficiently restrictive level", the final destination of the Fed Funds Rate had become more important than the pace. Meanwhile, many participants noted significant uncertainty about the ultimate level of the Fed Funds Rate and "various" participants suggested it was higher than previously expected. The minutes saw participants agree there were very few signs of inflation pressures abating (minutes were pre-October CPI) and they generally noted inflation risks remain tilted to the upside. There were also some concerns about the strength of the labour market, where a few participants said ongoing tightness could lead to an emergence of a wage-price spiral, even though one had not yet developed. Overall, the minutes suggested a slowdown is near as they approach restrictive territory, but it is uncertain what the terminal Fed Funds Rate will be, other than it would be data dependent and likely higher than what was previously expected - the September SEPs suggested 4.50-4.75%, but recent commentary has been inferring somewhere between 4.75-5.25%. The timing of how long rates are to stay in restrictive territory remains unclear, and will likely be directed by economic data.